BlackRock raises equity allocation in target date funds

Changes to LifePath Index come as other providers also have sought to increase equity allocations after retirement

BlackRock Inc. today announced it would raise its equity allocation in its LifePath Index target-date funds, keeping younger investors fully invested in stocks even longer and bumping up stocks at the landing point of retirement.

Under the current LifePath glide path, investors are fully invested in equities when they're 45 years out from retirement, and their allocation falls until it reaches 38% in stocks at the glide path's “landing point” – when the employee exits the workplace.

This latest version holds the equity allocation at 100% until the worker is about 30 years away from retiring, at which point the equity exposure begins to decrease. At the landing point, the employee is now at a 40% equity allocation.

Chip Castille, managing director and head of the U.S. retirement group at BlackRock, noted that the updates reflect how investors feel about risk over the course of their lifetime, as well as other economic factors.

“For younger investors, we raised the allocation a bit; they stay in equities a bit longer,” he said. “That's reflecting investor risk preferences, the median growth of salary in the U.S. and expectations in the capital markets.”

BlackRock's decision to update LifePath Index's glide path comes at a time when other providers are taking notice of longer lives and the rising risk of workers running out of money, noted Daniel Culloton, associate director of fund analysis at Morningstar Inc.

“It speaks to the question of how much equity you should have after retirement,” he said. “It seems incrementally they've moved in the direction of increasing equity exposure after retirement, recognizing that lifespans are longer and, if they're longer, then your risk of ruin is higher.”

On Wednesday, BlackRock also announced it would add two new strategies to its LifePath target-date fund platform: LifePath CoRI, a strategy that's focused on retirement income, and LifePath Dynamic, which combines active and passive investing.

Plan sponsors can use the two new strategies alongside LifePath Index, noted Mr. Castille. “Imagine a situation where you want LifePath Index for your early investors; it's low cost and efficient,” he said. “Then you get older, and maybe your middle fund comes from the Dynamic family because you want the glide path to adjust to changes in capital markets in a more rapid fashion.”

At the end, as workers prepare to convert their savings to retirement income, the LifePath CoRI can come into play, he said.